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. Last Updated: 07/27/2016

BP Chief Flies In as Kovykta Deal Nears

BP's new chief Tony Hayward held talks with Gazprom CEO Alexei Miller in Moscow late Thursday, as a deal on the gas giant's entry into BP's flagship Kovykta project appeared imminent.

Hayward and Miller "discussed issues of mutual interest" during talks at Gazprom's central Moscow offices, BP spokesman Vladimir Buyanov said.

Neither BP nor Gazprom would comment on whether the two discussed Kovykta, the huge gas field in eastern Siberia that TNK-BP has been fighting to keep amid mounting state pressure.

Several sources said President Vladimir Putin wanted a deal on Kovykta to be struck before he left for the Group of Eight summit in Germany, which begins Wednesday.

Oleg Mitvol, deputy head of the Natural Resources Ministry's environmental watchdog, has recommended that TNK-BP be deprived of its license at Kovykta for failing to fulfill production quotas. TNK-BP owns Kovykta through its majority share in license holder Rusia Petroleum.

"We understand that [the issue of Kovykta] is not to be decided by us," Gazprom spokesman Sergei Kupriyanov said Thursday. "Is everything all right with the license? So what is there to talk about?"

Gazprom has denied holding talks with TNK-BP over Kovykta, which is estimated to hold 1.9 trillion cubic meters of gas but is at an early stage of development.

The ministry's subsoil agency will not discuss Kovykta during a meeting Friday, agency spokesman Vitaly Tsoi said. The agency's license review commission meets every two weeks.

"Kovykta will not be looked at," Tsoi said. "Forget about Kovykta for now."

Yet a ministry source said the commission would likely review the Kovykta license Friday. "I'm about 94 percent certain they will look at it," the source said.

Under the license, Rusia Petroleum is obliged to produce 9 billion cubic meters of gas per year. It has been producing less than 1 bcm in the absence of an export pipeline to China.

Industry and Energy Minister Viktor Khristenko said Thursday that Russia was in talks with China to build a gas pipeline to the country.

The pipeline should be partially completed in the next five to six years, Khristenko told Reuters at a Paris energy conference, adding that he hoped additional pipelines would be built from fields in eastern and western Siberia. The "volumes, capacities and timeframe for such gas transport distribution systems are being discussed," he said.

Analysts say the ministry's increasing focus on Kovykta could indicate that negotiations on Gazprom's entry into the project might be drawing to a close.

Yet Kovykta remains an anomaly in the country, lacking a state-controlled Russian partner as the Kremlin seeks to bring major oil and gas projects under state control.

TNK-BP owns 63 percent in Rusia Petroleum. Interros, currently controlled by billionaires Vladimir Potanin and Mikhail Prokhorov, holds 26 percent and the Irkutsk regional government holds 11 percent.

TNK-BP officials have said in recent weeks talks with Gazprom have been held more often than ever before.

Hayward flew into Moscow late Wednesday to attend a meeting of TNK-BP's board of directors, Buyanov said. Hayward was due to fly out late Thursday.

Kupriyanov said Miller's meeting with Hayward had only been arranged recently, declining to provide specifics.

"That there is a dialogue going on at the top levels could be suggestive of some kind of breakthrough," said Roland Nash, head of research at Renaissance Capital.

Hayward and former BP chief Lord Browne met with Putin in March as TNK-BP announced it would bid for Yukos assets at a bankruptcy auction. Critics said BP was bowing to the Kremlin in a bid to ease the pressure on Kovykta.

TNK-BP's woes appear to mirror those faced by Shell at Sakhalin-2 last year. Shell and its Japanese partners sold a majority stake to Gazprom after months of pressure by Mitvol's agency over purported environmental violations.

Shell CEO Jeroen van der Veer met with Miller 10 days before agreeing to sell to Gazprom at a Dec. 21 meeting with Putin at the Kremlin.

"The bottom line is the Kremlin wants Kovykta to be under its control rather than BP's," Nash said, adding that having TNK-BP retain a stake in the project would be a good compromise.

"Given the current investment environment, the danger is that Kovykta being taken away would just confirm the feeling that Russia is drifting backward on several fronts," he said.

n The subsoil agency was due to review London-listed Imperial Energy's license for projects in the Tomsk region on Friday. Mitvol had accused the company of environmental violations and overstating reserves. "The company feels confident the issue will be resolved," an Imperial Energy spokesman said.